MANILA: The Philippine central bank is widely expected to deliver another quarter-point interest rate cut on Thursday (Feb 13), given a disappointing economic growth and within-target inflation.
Bangko Sentral ng Pilipinas will reduce its target reverse repurchase rate by 25 basis points to 5.50 per cent, according to 28 of 29 economists in a Bloomberg News survey, with one predicting a hold. Easing by another 0.25 percentage point for a fourth straight meeting would take borrowing cost to a fresh two-year low.
Against the backdrop of global uncertainties, including those related to President Donald Trump’s tariff policies, BSP’s easing cycle is likely to be slower in 2025. Governor Eli Remolona has indicated he’s leaning toward a 25-basis-point cut per semester this year, compared with three successive quarter-point reductions in 2024 starting August.
"US policy during the Trump administration is unpredictable,” wrote Tamara Henderson of Bloomberg Economics, who anticipates the central bank would signal a pause after a quarter-point cut on Thursday. "This should support the peso and help keep inflation expectations well anchored,” she said in a recent note.
Here are things to watch out for at BSP’s 3 p.m. briefing in Manila:
Analysts will pay close attention to any further guidance from Remolona, who has clearly telegraphed policy actions. Last year, he delivered on his plan to pivot to easing ahead of the US Federal Reserve.
While inflation remains a key consideration, economic growth is also an "important data point,” the governor said on Jan. 31, a day after the Philippines reported gross domestic product growth that missed the government’s target for a second straight year.
At the same time, price gains have moderated to well within the two to four per cent target band, helped by a drop in rice prices that’s seen to last until the early part of the second half.
Remolona said he’s monitoring the economy’s negative output gap - which suggests spare capacity due to weak demand - and further widening would indicate a need for additional monetary easing. In its latest monetary policy report, BSP noted that the output gap would remain negative this year and close by 2026.
The uncertainty surrounding US trade policy also remains a key economic risk, economists said.
Meanwhile, the Philippine peso has recouped some losses against the dollar, although it’s still among the worst-performing Asian currencies this year. Given the relative stability in the peso, there’s room for the BSP to cut further even after the Fed stood pat last month and signaled an extended pause.
Politics is an area that investors may be watching in the Philippines after the impeachment of Vice President Sara Duterte this month suggested that her family’s rift with President Ferdinand Marcos Jr. has intensified. The Senate will eventually decide whether Duterte will be ousted or not.
Marcos had played down any impact of the political developments on the economy, saying that the government continues to work on structural reforms and investments. - Bloomberg
